Chapter 3 Tutorial

Answer all questions.

1. When the price of kittens was $25 each, the pet shop sold 20 per month. When they raised the price to
$35 each, they sold 14 per month. The elasticity of demand for kittens would be _____________
A. 1.66.
B. 0.75.
C. 0.94.
D. 0.60.
2. The price elasticity of demand measures how responsive _____________
A. buyers are to a change in income.
B. sellers are to a change in price.
C. buyers are to a change in price.
D. sellers are to a change in buyers’ incomes.
3. Demand is said to be elastic if ____________
A. the price of the good responds substantially to changes in demand.
B. demand shifts substantially when the price of the good changes.
C. buyers do not respond much to changes in the price of the good.
D. the quantity demanded responds substantially to changes in the price of the good.
4. An inelastic demand means that ____________
A. consumers hardly respond to a change in price.
B. consumers respond substantially to a change in price.
 C. consumers respond directly to a change in income.
D. the change in quantity demanded is equal to the change in price.
5. If a good is a necessity, demand for the good would tend to be ____________
A. elastic.
B. horizontal.
C. unit elastic.
D. inelastic.
6. The elasticity of demand for luxuries tends to be ____________
A. greater than 1.
B. less than 1.
C. equal to 1.
D. equal to 0.
7. If a person only occasionally enjoys a cup of coffee, his demand for coffee would be ____________
A. horizontal.
B. inelastic.
C. unit elastic.
D. elastic.
8. Demand for a good would tend to be more inelastic the ____________
A. fewer the available substitutes.
B. longer the time period considered.
C. more the good is considered a luxury good.

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 D. more narrowly defined the market is.

9. For a vertical demand curve, slope _____________

A. is undefined and elasticity equals 0.
B. equals 0 and elasticity is undefined.
C. and elasticity are both undefined.
D. and elasticity are both equal to 0.
10. Werthers candy tends to have an elastic demand because ____________
A. the candy market is too broadly defined.
B. there are many close substitutes for Werthers.
C. Werthers are considered by some to be a necessity.
D. it is usually eaten quickly and therefore the time horizon is short.
11. When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls
to $0.40, the quantity demanded increases to 600. Given this information, you know that the demand for
bubble gum is ____________
A. inelastic.
B. elastic.
C. unit elastic.
D. perfectly inelastic.
12. Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the
quantity of X demanded. Price elasticity of demand for X is ____________
A. 1.
B. 6.
C. 0.

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 D. infinite.
13. Suppose the price of Twinkies is reduced from $1.45 to $1.25 and, as a result, the quantity of Twinkies
demanded increases from 2,000 to 2,200. The price elasticity of demand for Twinkies in the given price
range is ____________
A. 2.00.
B. 1.55.
C. 1.00.
D. 0.73.
14. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price would result in a
____________
A. 4.0 percent decrease in the quantity demanded.
B. 10 percent decrease in the quantity demanded.
C. 40 percent decrease in the quantity demanded.
D. 400 percent decrease in the quantity demanded.
15. In the case of perfectly inelastic demand, ____________
A. quantity demanded stays the same regardless of price changes.
B. huge changes in quantity demanded result from very small changes in the price.
C. the change in quantity demanded exactly equals the change in price.
D. the change in quantity demanded will be twice the change in price.
16. A perfectly elastic demand implies that _____________
A. buyers will not respond to any change in price.
B. any rise in price above that represented by the demand curve will result in no output demanded.
C. price and quantity demanded respond proportionally.
D. price will rise by an infinite amount when there is a change in quantity demanded.

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17. When demand is inelastic, a decrease in price will cause ______________
A. an increase in total revenue.
B. a decrease in total revenue.
C. no change in total revenue.
D. there is insufficient information to answer this question.
18. Chocolate Chip Cookie Dough ice cream would tend to have very elastic demand because ____________
A. it must be eaten quickly.
B. the market is broadly defined.
C. There are few substitutes.
D. other flavors of ice cream are almost perfect substitutes.
19. Demand is said to be unit elastic if ___________
A. quantity demanded changes by the same percent as the price.
B. quantity demanded changes by a larger percent than the price.
C. the demand curve shifts by the same percentage amount as the price.
D. quantity demanded does not respond to a change in price.
20. A bakery would be willing to supply 500 bagels per day at a price of $0.50 each. At a price of $0.80, the
bakery would be willing to supply 1100. The elasticity of supply for bagels would be _________
A. 0.61.
B. 0.77.

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 C. 1.24.
D. 1.63.
21. If the quantity supplied is the same regardless of price, then the supply curve would be ___________
A. elastic.
B. perfectly elastic.
C. perfectly inelastic.
D. inelastic.
22. In the long run, the quantity supplied of most goods ____________
A. cannot respond at all to a change in price.
B. cannot respond much to a change in price.
C. can respond substantially to a change in price.
D. will naturally increase regardless of what happens to price.
23. Which of the following would have the most elastic demand?
A. clothing
B. blue jeans
C. Levi jeans
D. All three would have the same elasticity of demand since they are all related.
24. In any market, total revenue is price _____________
A. divided by the price elasticity of demand.
B. multiplied by quantity.
C. plus quantity.
D. multiplied by quantity minus the costs of production.
25. An increase in price causes an increase in total revenue when ____________
A. demand is elastic.
B. demand is inelastic.
C. demand is unit elastic.
D. All of the above are possible.

26. If the demand for donuts is elastic, a decrease in the price of donuts will _____________
A. increase total revenue of donut sellers.
B. decrease total revenue of donut sellers.
C. not change total revenue of donut sellers.
D. There is not enough information to answer this question.
27. You produce jewelry boxes. If the demand for jewelry boxes is elastic and you want to increase your total
revenue, you should _____________
A. increase the price of your jewelry boxes.
B. decrease the price of your jewelry boxes.
C. not change the price of your jewelry boxes.
D. None of the above answers are correct.

Supply Curve A Supply Curve B Supply Curve C

Price $1.00 $2.00 $1.00 $3.00 $2.00 $5.00
Quantity 500 600 600 900 400 700
Supplied

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28. According to the table above, which of the following would represent a more inelastic supply curve?
A. supply curve A
B. supply curve B
C. supply curve C
D. There is no difference in the elasticity of the 3 supply curves.

29. If the elasticity of supply of a product is 2.5, we know that supply is _____________
A. inelastic.
B. elastic.
C. unit elastic.
D. perfectly inelastic.
30. If a change in the price of a good results in no change in total revenue, ____________
A. the demand for the good must be elastic.
B. the demand for the good must be inelastic.
C. the demand for the good must be unit elastic.
D. buyers must not respond very much to a change in price.
31. When the local used bookstore prices economics books at $15.00 each, they generally sell 70 per month.
If they lower the price to $7.00 each they sell 90. Given this, we know that the elasticity of demand for
economics books is ___________
A. 2.91, so this store should lower price to raise total revenue.
B. 2.91, so this store should raise price to raise total revenue.
C. 0.34, so this store should lower price to raise total revenue.
D. 0.34, so this store should raise price to raise total revenue.

32. The supply of a good will be more elastic the ____________

A. more the good is considered a luxury.
B. broader the market is defined.
C. more close substitutes the good has.
D. longer the time period being considered.